[Alan]

I was reading Marx's Wage, Labour and Capital, and it explains the relationship between profits and wages.
A lot of Marx's economic ideas are outdated, but I saw something that is interesting and I can't put my finger on how it would be accounted for today. It might still be applicable, and if so, it has huge implications.
I believe Desp is gonna love this.

So, long story short, we know that capitalism creates abundance, even if most of us criticize it for creating inequality. Maybe it creates its own scarcity; maybe it monopolizes this abundance and most people end up worse off; maybe it is ecologically devastating.
Regardless of this, we know that capitalism is a juggernaut that extracts resources and creates new things at an impressive speed.
Few would question the fact that capitalism constantly creates and expands every day.

But this creation of new products, this extraction and refining of previously unused resources, can it create new value? If it can't create value, how can a profit be made?

Karl Marx explains the workings of supply and demand and then says this:

If the price of a commodity rises considerably owing to a failing supply or a disproportionately growing demand, then the price of some other commodity must have fallen in proportion; for of course the price of a commodity only expresses in money the proportion in which other commodities will be given in exchange for it. If, for example, the price of a yard of silk rises from two to three shillings, the price of silver has fallen in relation to the silk, and in the same way the prices of all other commodities whose prices have remained stationary have fallen in relation to the price of silk.


As I was reading it, I immediately saw something that I couldn't agree with. If the price of a product increases, the price of some other commodity must fall? That doesn't sound right.
But this gets taken care of with the example in the next sentence. A new yard of silk has been introduced to the market at a particular point in time in which there was a very specific, albeit immensely large, amount of global capital. This global capital thus must take into account the introduction of this new yard of silk into the market. Because no new money has been created, the yard does not create new value, but rather becomes relativized by the market and is valued to a certain amount of existing capital, existing capital which must be drawn from everything else that was already valuated.
Of course, because of the amount of money and the seemingly infinite amount of products in the market, the introduction of one meager yard of silk, or even a thousand miles of silk, does not devalue the price of any product in any observable manner. If we were to pinpoint this devaluation we'd be talking of percentages of fractions of femtopennies. But the devaluation does become manifest in the daily changes of supply and demand of unrelated products when consumption or production of such products remain stable.

Sure, one could say that new money is created all the time. The United States prints millions and millions of new dollars every day. But this creation of new money just devalues the current power of a currency. We all understand inflation.

What does this all mean? That capitalism cannot create new value. Obviously it DOES create new products, it does create innovation, and it creates amazing economic growth, but all this innovation, all this production, and all this growth, is just relativized into the market instead of creating new value for the market.
This is a marxist interpretation of what liberal economists would consider a truism: value depends entirely on marginal utility.

Capitalism is a regulatory force, and thus it is not a system that creates wealth, but only redistributes wealth. If there is nothing wrong with Marx's understanding of price fluctuations, capitalism is indeed a zero-sum game once you make a distinction between real wealth and relative wealth, i.e. value.


So, so far we have this conclusion: capitalism is not an economic system that can create value, but it is a rational regulatory system of the redistribution of value. Value doesn't change, it just changes hands.
This is a neutral statement on capitalism.



But the Marxist aspect comes in place here.

If value does not change, then new capital is not added value but rather a stretching of value. That's what happened with the infusion of gold and silver after the discovery of the New World. The Old World could not absorb this inflow of precious metals, so the metals were devalued, but at the same time this is what allowed for new markets to emerge and put this new gold to good use. No new value was added; the only thing that happened is that the total value of production could eventually be anchored to devalued gold and thus more transactions could happen.

But what happens when capital grows but wages don't? It means that the purchasing power of the workers goes down, going back to the differences between real wealth and relative wealth, or in this case real wages and relative wages.
Because there's no new value added with new production, if profits grow faster than wages, this does not make a richer world but just shifts the concentration of wealth in the world.

Here's how Marx explains it:

A rapid growth of capital is synonymous with a rapid growth of profits. Profits can grow rapidly only when the price of labour – the relative wages – decrease just as rapidly. Relative wages may fall, although real wages rise simultaneously with nominal wages, with the money value of labour, provided only that the real wage does not rise in the same proportion as the profit. If, for instance, in good business years wages rise 5 per cent, while profits rise 30 per cent, the proportional, the relative wage has not increased, but decreased.

The living conditions of the workers have indeed improved; but that shouldn't be enough for the workers. Because capital growth does not mean new value but just a bigger influence over the market, the impact of the workers' labor in the market proportionally increases too, but their wages do not, and thus the more they work, the more they devalue their own labor unless the capitalist increases their wages in proportion to profits.


All this rests on the observation that no new value can be created in the market. Obviously the market has expanded by leaps and abounds since the time where capitalism per se was bounded to Birmingham and neighboring regions, but this expansion just means that the purchasing power has been spread as capitalism absorbs more markets, not that there was less purchasing power than there is today.